Nobel Prize in economics awarded to William Nordhaus and Paul Romer

Nobel Prize in economics awarded to William Nordhaus and Paul Romer

The Nobel Prize for Economics has gone to two American economists, William D Nordhaus, who studies the interaction among nature, technology and the economy over time, and Paul M Romer, who endogenised technology into the growth model popularised by Robert Solow, in which technology functioned as an autonomous, external factor.

Paul Romer, an economist at NYU, won the other half of the award for his life's work, which is centered around how new ideas - born through technology, encouraged by patents, and spurred on by some healthy competition - can drive sustainable, long-term economic growth.

His "integrated assessment model" is now widely "used to simulate how the economy and climate co-evolve" and to examine the consequences of climate policy interventions, for example carbon taxes.

Romer was recognized for his work modeling methods for long-term economic growth and for exploring economic decisions and how market conditions can fuel technological innovation, the academy said in the release.

The economics prize is the last of the Nobel prizes to be awarded this year.

Two researchers at American universities have been awarded the 2018 Nobel Prize for Economics.

While both academics have done their work apart from one another, their research taken together can help confront politically challenging issues such as the United States under President Trump pulling out of the Paris accord on fighting climate change.

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"Many people think that protecting the environment will be so costly and so hard that they just want to ignore the problem", he said via phone.

The mainstream economic analysis of the 1970s, when Romer was a graduate student and Nordhaus was an assistant professor, was mostly dedicated to what's known as general equilibrium analysis: If consumers were to maximize their utilities, and producers were to maximize their profits, what would happen?

Romer laid the foundation for "endogenous growth theory", which predicts economic growth based on internal factors such as investment in human capital rather than exclusively on external factors, such as bringing in more advanced equipment and technology from the outside. The model showed that "the most efficient remedy for problems caused by greenhouse gases is a global scheme of universally imposed carbon taxes".

In doing so, Romer changed the old approach to economic growth completely. He was chief economist at the World Bank from 2016 to 2018, and is credited with the quote "A crisis is a bad thing to waste".

One received the award for his findings on the economics of climate change.

Last year, the honor went to U.S. economist Richard Thaler, a co-founder of the so-called "nudge" theory, which demonstrates how people can be persuaded to make decisions that leave them healthier and happier.

This year four other Nobel prizes were handed out - Arthur Ashkin, Gerard Mourou and Donna Strickland for Physics, Frances Arnold, George Smith and Gregory Winter for Chemistry, James P Allison and Tasuku Honjo for Medicine and Denis Mukwege and Nadia Murad for Peace. The laureates have been awarded equal shares in the prize.

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